A what you say? To put in more meaningful terms, if your employer died today, would the company continue to exist? Is there a plan in place to keep the business going? If not, is there a plan in place to soften the economic impact on employees, especially key employees in the event of an untimely death?
Safe to say that there isn’t a day that goes by that a small business in this country isn’t faced with this situation, and if left unplanned for, it is not just a blow to the family of the deceased, but to everyone who depended on their jobs to take care of their families. A succession plan is simply a road map for the company, the heirs and the employees to follow to ensure the last economic impact on all.
Often in small businesses there is a key employee that, in the absence of the boss, could step in and run the company without any severe loss of momentum. Given the resources, this person could well step in and take over as the new owner and the company would have its’ future intact. Those resources, in the form of business life insurance, can be planned for in a succession plan.
In that model, an insurance policy could buy the family out and provide working capital for the transition. Legal documents would transfer the ownership of the company and its’ assets to the new owner.
Another avenue would be if the family wanted to maintain ownership and control. A life insurance policy that provides a pool of working capital is a prudent step. Even though the family may have a good working knowledge of the business, until customers see that a business if on solid ground, there may be some hesitancy about continuing a flow of orders until they are comfortable with the new leadership. In many cases, in spite of best efforts, customers will be lost. The capital to weather that storm and work toward new accounts and a new customer base will be crucial to the surival of the company.
Bottom line. Life insurance, usually in the form of term insurance, is an inexpensive way to ensure that faithful employees can continue a company beyond your death. If there is no desire or possibility that the company could or would continue on, life insurance can provide a reasonable severance resource that will help those employees move on.
My 20 years of experience give me the knowledge and leverage to find reasonably-priced life insurance for people who have been declined or are paying more than they need to.
At best your advice is fuzzy and a little off, well a lot off. In the event that the owner dies and a key employer or employees are to take over the company, you suggest the owner to take out a life policy to finance this event?
I would think that the family and or heirs of the owner would be the ones that should recieve financial windfall not any key person or persons of the business. I rarely run into this type of setup because it really does put the owners employees above his own family.
Personally and I think most owners would just assume in the case of their death or inabililty to continue on that the Key Employee or Employees just buy the business as in getting their own financial backing and pay the Owner’s Family true value of the business. Planning for that I would think to be more equitable to the family of the Owner. The policy should pay the family and they can pay a salary to any Key Person while a financial package can be implemented to purchase the company, if the family is not interested in keeping the business.
Plus not to pick on you do much, why term? If I put a succession plan into effect on a 45 year old, can I assume he’ll retire at 65, 70 or 75? Most likely hood if you actually talk to Owners, they have no real plans on retiring at all, making Term a really bad idea as in he needs Insurance to pay at death not on any given event within a certain period of time. Plus the older the owner a SGUL or a NLPG policy may very well be cheaper then a 20 or 30 year term plan, of course depending upon age.
James, You have some good points based on what you think the scenario could be. General advice, which is what I was giving, is always going to be a bit fuzzy. Given specifics clear lines can be drawn.
Just because an owner doesn’t have a plan to retire, doesn’t mean that term is a bad idea. Show me a business that remains the same for life, or for that matter, even 20 or 30 years, and I will concede that they are better off with a permanent product. The truth is that most businesses are not stagnant and their need today will not be the same 10 years from now. Term offers a lower cost and more flexibility.
I understand that it is easy a short set of ideas. It appears in your case that you would have preferred my best selling book, “What to do in every conceivable situation if the owner of a business died”, rather than a blog.
Again, I don’t disagree with some of your ideas, and in fact you will find in previous posts that I offered some of your ideas based on different situations. Thanks for your input.